Excerpt:.....assessee's activities with regard to horse races as a distinct source of income taxable under the head 'income from other sources' and restricted the carry forward and set off of the loss against that head alone. on appeal, the commissioner (appeals) found that these activities have been recognised as a business carried on by the assessee and had been assessed as income from business for the earlier years and he, therefore, held that such income could not be assessed under the residuary head 'income from other sources'.8. in the appeals before us the contention of the revenue was that even though racing income of the assessee was being taxed as income from business in the earlier years it was assessable under the head 'income from other sources' because the income-tax act, 1961 ('the.....

Judgment: 1 to 6 [These paras are not reproduced here as they involve minor issues.] 7. We take up the last common point in the appeals of the revenue which arises for all the assessment years. The ITO had treated the income/loss arising from the assessee's activities with regard to horse races as a distinct source of income taxable under the head 'Income from other sources' and restricted the carry forward and set off of the loss against that head alone. On appeal, the Commissioner (Appeals) found that these activities have been recognised as a business carried on by the assessee and had been assessed as income from business for the earlier years and he, therefore, held that such income could not be assessed under the residuary head 'Income from other sources'.

8. In the appeals before us the contention of the revenue was that even though racing income of the assessee was being taxed as income from business in the earlier years it was assessable under the head 'Income from other sources' because the Income-tax Act, 1961 ('the Act') has been amended to assess such income only under that head and also there was a restriction on the carry forward and set off of the losses. It was submitted that the amended provisions of the Act should, therefore, be given effect to. On the other hand, the contention of the assessee was that once the character of the income was business income as held by the Tribunal in the earlier years, it could not be brought under the head 'Income from other sources' and the restrictions imposed in respect of carry forward of the loss could apply only if the assessment could be made under the head 'Income from other soarces'.

9. On a consideration of the rival submissions, we are of the opinion that the revenue is entitled to succeed on this point. No doubt the assessments have been made up to the assessment year 1970-71 assessing income from racing activities of the assessee as income from business on finding that the assessee was carrying on racing and betting activities as business. Such income was being taxed as income from business for, if those activities had not constituted business activity, such income would not have been taxable at all, being income of casual and non-recurring nature. The Finance Minister in his Budget speech for the year 1972-73 in [1972] 83 ITR (St.) 201 at p. 208 stated that in order to remove any temptation that people may feel for neglecting their regular duties in favour of any casual or ephemeral or even imaginary pastime, he proposed to withdraw the present exemption in respect of casual and non-recurring income when it exceeds Rs. 1,000 in a year. Accordingly, the definition of income in Section 2(24)(ix) of the Act was enlarged to include any winnings from races including horse races besides lotteries, etc., and such income was taxable under the head 'Income from other sources' by amendment of Section 56 of the Act. Simultaneously Section 74A of the Act provided that the loss from such source will be set off only against income from the same source.

The memorandum explained in the Finance Bill stated in [1972] 83 ITR (St.) 173 at p. 178, paragraph No. 13 that for this purpose each of the following sources, viz., lotteries, crossword puzzles, races including horse races, card games, other games of any sort, betting or gambling of any form will be regarded as a separate and distinct source. Thus, while losses from bridge may be set off against winnings from any other card game, these will not be set off against income from any other source. The question is whether these amendments affected the assessment of income from concerned business activities relating to racing which would otherwise be taxable as income from business. The contention of the assessee is that it could not make any difference and in any event, since the definition of winnings would exclude certain other income of the assessee from these activities, a part of income from one source could not be separated and taxed as income from other sources. On the other hand, the contention of the revenue is that when a specific provision has been made by statute that has to be given effect to. The contention of the assessee appears to have some force when we find that income frome winnings, etc., have not been treated as income for the purpose of advance tax whereas the same income if it is found to be income from business would be liable for advance tax.

Further, generally speaking the head 'Income from other sources' is taken as a residuary head and unless the income is such that it does not fall under any other source, could it be assessed under the head 'Income from other sources'. Yet, the scheme of the Act as amended clearly supports the revenue and spurns the contention of the assessee.

We derive a solution to this question from Section 56 itself. Thus, Sub-section (1) of that section provides that income of every kind shall be charged under the head 'Income from other sources' if it is not chargeable to income -tax under any other head. Subsection (2) provides that in particular and without prejudice to the generality of the provisions of Sub-section (1) the following income shall be chargeable to income-tax under the head 'Income from other sources', viz., (i) dividends, (ib) income referred to in Sub-clause (ix) of Clause (24) of Section 2. In other words notwithstanding the general view that income falling under the head 'Profits and gains of business or profession' will not be chargeable to tax under the head 'Income from other sources', a particular income specified in Sub-section (2) has to be assessed only under the head 'Income from other sources'.

Dividends is a case in point. There are cases where dividends are earned as part of the business activity and would normally be assessed to tax as 'Income from business'. Still, such dividend would be separated and assessed under the head 'Income from other sources' (see the decision of the Bombay High Court in the case of CIT v. D.G. Goenka [1981] 129 ITR 260. This makes it clear that even if the income is derived from the source which falls, under the head 'Profits and gains of business or profession' a part of it could well be carved out and assessed as 'Income from other sources' because of the specific provisions of Sub-section (2) of that section which contains a non obstante clause. Consequently, income from racing falling within the definition of Section 2(24)(ix) must necessarily be assessed under the head 'Income from other sources'. Once that is so the provisions of Section 74A are attracted and any loss arising from that source could be set off only against income from that source. This position is inescapable from the wording of Section 56. However, income that could be assessed under Section 56(2) must be confined to such income as would fall within the scope of Section 2(24)(ix) e.g., in the case of M.CT. Muthiah v. CIT [1974] 97 ITR 516 (Mad.). We find that no attempt has been made to bifurcate the income from this source as income falling within the scope of Section 2(24)(ix) and the income which could be otherwise assessed as income from business. We, therefore, deem it fit to set aside the orders of the authorities below on this point and remit the matter to the ITO for bifurcating the income and making an assessment with regard to this income in accordance with the provisions of the Act.

10. In the result, all the assessee's appeals are dismissed except IT.Appeal No. 625 of 1984 which is partly allowedFirst ITO v.Visweswaraiah Lucky Centre [1983] 5 ITD 132, was cited in favour of the assessee. That was a case where an agent of lottery tickets received a bonus on one of the prize winning tickets he had sold to a third party.

The bonus received was Admittedly income from business in that case.

The question of treating it as income from other sources did not arise.

The claim for deduction under Section 80TT of the Act was disallowed.

There is, no doubt, an observation in that case that winnings from lottery tickets would be assessed as income from 'other sources' only in the hands of those persons who do not carry on business but it will be assessed under the head 'Profits and gains of business or profession' where a person carries on the business in buying and selling of lottery tickets. The decision was given on the basis of the decision of the Karnataka High Court in the case of Mysore Sales International Ltd. v. C1T [1979] 117 ITR 64. The assessment year involved was 1971-72 for which Section 2(24)(ix) did not apply.

Further, the decision of the Bombay High Court in D.G. Goenka's case (supra) was also not brought to our notice. In any case, the facts in Visweswaraiah Lucky Centre's case (supra) are distinguishable. In that case, the assessee did not win the bumper prize but a person who had purchased a ticket from the assessee got the bumper prize. All that the assessee got, was a bonus on the prize winning ticket sold, which was quite different from the bumper prize received by the purchaser of the ticket, and did not constitute winnings from lottery. The bonus as wall as commission on tickets sold became part of the business receipts of the assessee about which there was no dispute. Since the facts are distinguishable, the decision in Visweswaraiah Lucky Centre's case (supra) will not apply to the instant case.